Why a preapproval letter matters

A preapproval letter does three practical things: it gives you a realistic price range, improves your negotiating position with sellers and agents, and speeds the closing timeline when you find a home. In my 15 years working with homebuyers, I’ve seen a preapproval turn a tentative offer into a winning one—provided the buyer understands the letter’s limits and manages their finances while escrow is open.

(Authoritative context: the Consumer Financial Protection Bureau and HUD advise that preapprovals are conditional and not final loan commitments — see CFPB and HUD.)

How lenders create preapproval letters

Lenders typically verify these items when issuing a preapproval:

  • Credit report and score check (hard inquiry may occur).
  • Income documentation (pay stubs, W-2s, tax returns for self-employed).
  • Asset verification (bank statements, retirement accounts for reserves).
  • Debt and liability review (student loans, auto loans, credit cards).

Preapproval results include a likely loan amount, an estimated interest rate or range, and an expiration date (commonly 60–90 days). The letter is based on information available at application and assumes nothing material changes before closing.

Common lender-side caveats they rarely advertise

  1. Preapproval is conditional: Underwriting still must verify everything again. The final approval can fail due to job changes, new debts, credit-score drops, appraisal shortfalls, or title problems. (CFPB guidance.)
  2. Rate quotes in preapprovals are illustrative: Rates can move between preapproval and lock. A rate lock is separate and usually happens later in the process.
  3. The preapproved amount is not your comfort limit: affordability depends on taxes, insurance, HOA fees, and future rate moves.

Practical tips lenders don’t tell you (use these)

  1. Freeze major financial moves: Don’t open new credit, co-sign loans, change jobs, or make large deposits without documented sources while your loan is pending. These actions frequently trigger re-underwriting problems. (In my practice this is the single biggest cause of approval delays.)
  2. Ask what underwriting system they use: Automated underwriting (e.g., Desktop Underwriter or Loan Prospector) may be more tolerant of certain income types; human underwriters vary. If your file has quirks (nonstandard income, recent credit events), ask whether a manual underwrite will be used. See our guide on hard inquiries when shopping for mortgages for how rate-shopping affects credit checks.
  3. Get a preapproval “with conditions” in writing: If the lender requires particular documents, have them listed in the letter. That reduces surprises later.
  4. Shorten the window for re-verification when possible: If you plan to search longer, ask about re-verifying documents near closing to avoid re-starting the process.
  5. Don’t treat the top-of-letter amount as a target: Use a budget calculator that includes escrow, taxes, insurance, and recommended reserves.

Related internal resources: see our explanation of the real impact of hard inquiries when shopping for mortgages and how escrow accounts affect monthly payments.

Real-world scenarios

  • Competitive market: A buyer with a solid preapproval and clear, recent bank statements often wins tie-breakers over an otherwise similar offer. Sellers care about certainty; clear documentation shortens seller hesitation.
  • Appraisal gap: Preapproval won’t cover a purchase price above the appraised value. If the home appraises low, you must make up the difference or renegotiate. See our post on mortgage appraisal gaps for how to prepare.

Related reading: “Mortgage Appraisal Gaps: What Borrowers Should Expect” — https://finhelp.io/glossary/mortgage-appraisal-gaps-what-borrowers-should-expect/

Documents checklist to speed approvals

  • 2 most recent pay stubs
  • Last 2 years W-2s (or 1099s/tax returns if self-employed)
  • 2–3 months of bank statements for all accounts used in the transaction
  • Documentation of large deposits (gift letters, asset sale proceeds)
  • ID and Social Security number

Common mistakes to avoid

  • Relying on a preapproval as a guarantee of closing.
  • Forgetting to disclose co-borrowers, co-signers, or recent credit events.
  • Shopping without comparing lender fees and underwriting differences.

Quick answers to frequent questions

  • How long valid? Typically 60–90 days; ask the lender for specifics.
  • Can it change? Yes—changes in employment, credit, or the appraisal can alter the final approval or loan terms.

Final advice

Use preapproval to set realistic expectations and to signal seriousness when making offers, but keep your financial picture steady from application through closing. Shop lenders for underwriting style and ask for clear, written conditions so there are no surprises.

Sources and further reading

Professional disclaimer: This article is educational and does not constitute personalized financial or legal advice. Consult a licensed mortgage professional or financial advisor for guidance specific to your situation.